Faucher v. Lopez
| Decision Date | 13 May 1969 |
| Docket Number | No. 22096.,22096. |
| Citation | 411 F.2d 992 |
| Parties | Henrietta M. FAUCHER, etc., Appellant, v. Dolores Knoll LOPEZ, Louise M. Giovannoni, and Joseph E. Hazel, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Howard L. Thaler (appeared), Beverly Hills, Cal., for appellant.
Richard M. Moneymaker (appeared), of Tiernan & Moneymaker, Los Angeles, Cal., for appellees.
Before BARNES, HAMLEY and CARTER, Circuit Judges.
This is an appeal from a judgment of the district court following a directed verdict in a jury trial, adjudicating appellant to be a bankrupt. Joseph E. Hazel and others, petitioning creditors,1 filed an involuntary petition in bankruptcy against the appellant on May 14, 1963. She answered denying, among other things, that she was insolvent at the time the alleged acts of bankruptcy occurred, and demanded a jury trial on the issue. She was ordered by the referee, pursuant to Sec. 3(d) of the Bankruptcy Act, 11 U.S.C. § 21(d) to appear before him with her books, papers and accounts and submit to an examination and give testimony on the issue of her solvency. She appeared on August 16, 1963 but invoked the Fifth Amendment of the Constitution and refused to testify.2 Subsequently in 1963 the receiver appointed by the bankruptcy court filed a motion for an order requiring her to turn over all her books, records and documents to him as custodian of her property. She again refused and asserted privileges under the Fourth and Fifth Amendments of the Constitution as justification; a district judge ruled the books and records were privileged.
Similarly again in 1963, she resisted answering interrogatories on the same grounds. The district judge ordered her to answer the interrogatories within ten days. Appellant likewise refused to answer requests for admissions, and filed a motion for a protective order. The case had been set for trial on June 23, 1964, but on that day the district court granted her an indefinite continuance. Appellees filed a motion for sanctions under Rule 37, Fed.R.Civ.P., and a motion for early trial; both were denied, but appellees' motion for appointment of a Special Master to try non-jury issues was granted.
The appellant raises five questions:
1. Was the appointment of the Special Master to try the nonjury issues improper; and were the findings of the Special Master supported by the evidence?
2. Were the claims of appellees as petitioning creditors invalid under California Usury laws, and did appellees have unclean hands?
3. Was appellant deprived of due process by being unable to attend the jury trial on the issue of her insolvency?
4. Did the Special Master and district court shift the burden of proof on the question of insolvency from appellees to appellant?
5. Did the district court improperly direct the verdict in favor of appellees on the issue of insolvency?
The Special Master, after hearing evidence, further found that the claims asserted by the petitioning creditors in excess of $33,000 were debts of the bankrupt; were unsecured; were debts in existence at the time of the filing of the involuntary petition; that at the date of filing she owed debts in excess of $1,000; that the petitioning creditors did not have unclean hands and that the alleged bankrupt was estopped to claim that the petitioning creditors had unclean hands; that the transactions which were the basis for petitioning creditors' claims were not usurious. The Special Master further concluded that the burden of proof on the issue of insolvency shifted from the petitioning creditors to the alleged bankrupt. This issue was to be later tried to a jury.
No reporter's transcript was prepared by either party and the district judge approved the findings of fact and conclusions of law in the Special Master's report.3
The findings of the Special Master disposed of all issues except whether appellant was insolvent or unable to pay her debts as they matured on March 13 and 22, 1963.
Thereafter a jury trial was conducted by the district judge on these remaining issues and the court directed a verdict for appellees and entered a judgment adjudicating appellant a bankrupt.
THE SPECIAL MASTER
The appellant has only a one line sentence in her brief on the subject, to-wit, "The reference on the non-jury aspects of the cause to a Special Master was improper."
Appellant was entitled to a jury trial only on the issues of insolvency and whether the alleged acts of bankruptcy had been committed. Section 19(a) of the Act, 11 U.S.C. § 42(a). In re Airmont Knitting & Undergarment Co. Inc., 182 F.2d 740 (2 Cir.1950); 2 Collier on Bankruptcy, § 19.02 (14th Ed.).
The reference to the Special Master for the trial of non-jury issues was proper. Rule 53, Fed.R.Civ.P. We have not been referred to any objection made in the trial court to the reference and we find none in the record. The one sentence reference to the matter in appellant's brief on appeal comes too late. Coyner v. United States, 103 F.2d 629 (7 Cir.1939); See, McGraw-Edison Co. v. Central Transformer Corp., 308 F.2d 70, 72 (8 Cir.1962).
The Special Master found that the appellant for many years had been engaged in preparing and selling fictitious promissory notes and deeds of trust, evidenced by fictitious policies of title insurance; that appellant by making payments on account of the fictitious notes induced purchasers to continue to purchase additional fictitious promissory notes and deeds of trust, until she was indicted, convicted and sent to prison in February 1964; that since the notes and documents were spurious there was a failure of consideration and the petitioning creditors, having in good faith paid monies for the notes, had valid unsecured claims in an amount in excess of $33,000.00.
The findings of the Special Master are clearly and overwhelmingly supported by the evidence.
The Special Master found that the petitioning creditors believed they were purchasing bona fide and valid promissory notes and deeds of trust at a discount; and they did not receive any usurious interest and did not have unclean hands. He concluded they were not estopped from asserting their claims; and that the appellant was estopped from asserting the defense of unclean hands. The findings of the Special Master were clearly supported by the evidence.
The Special Master was correct in his conclusions of law; his report, with its findings and conclusions, was properly approved and adopted by the district court.
The petitioning creditors were not seeking to enforce the notes. They were seeking to recover the monies paid as a result of the fraud perpetrated on them. All amounts received from appellant were credited to the amount of their claims.
We have been cited to no authority and have found none that usury could possibly be a defense in such a situation. Petitioning creditors are not seeking to recover usurious interest. If they were seeking to recover the principal of the notes only, they could recover. It is only the interest which is barred by the California statute. Haines v. Commercial Mortgage Co., 200 Cal. 609, 623, 254 P. 956, 255 P. 805, 53 A.L.R. 725 (1927); Moore v. Russell, 114 Cal.App. 634, 641, 300 P. 479 (1931); Gregg v. Phillips, 105 Cal.App. 132, 286 P. 1071, (1930). But here the petitioning creditors had in substance rescinded because of fraud. They were entitled to a return of their money, less amounts received by them. Since the Special Master found they were purchasing the notes at a discount and were not lending money, usury has utterly no place in the case.
Likewise appellant's claim of unclean hands does not bar the petitioning creditors but this doctrine is applicable to her. She falsely and fraudulently sold the notes and trust deeds to petitioning creditors. She cannot set up her own wrong as a defense. If usury were in the case she would be estopped from raising that defense.
Appellant was in the California Institution for Women at the hearing before the Special Master. However, she was ably represented by counsel. The Special Master found that appellant's counsel at the commencement of a continued hearing on May 23, 1966 raised the question of appellant's absence. The Special Master also found that appellant's counsel made no showing whatever that a writ of habeas corpus ad testificandum, nor the appropriate fees had been delivered to the United States Marshal; nor that the writ had been served.
The lack of presence of appellant at the jury trial before the district court was raised in that proceeding. Appellant was again absent. This time a writ had been issued and served. No effort was made by appellant to secure compliance with the writ. The district court offered to move the trial to the place of confinement of the appellant. Her counsel did not pursue or accept the offer.
There is no constitutional right of a litigant to be personally present during the...
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